The self-driving car seems like a terrible driver’s dream: no steering wheel to control, no trouble parallel parking, no concerns about having a couple of beers on the way home from work. But the removal of fallible human drivers might create havoc for auto insurers.
Human error accounts for 90 percent of road accidents, according to the International Organization for Road Accident Prevention, and our collective failure rate helps the auto insurance industry rake in a cool $157 billion in premiums each year. So if self-driving cars eliminate all those driver mistakes, the business of insuring vehicles will necessarily change as well.
A recent study by RAND Corp. (PDF) predicted increased liability for auto manufacturers while personal liability plummets. “If a vehicle and a human share driving responsibility, the insurance issues could become more complicated,” the study noted. The RAND authors had a sober message for insurers: If automated vehicles succeed in reducing the risk of crashes, the industry could see a “significant reduction in insurance premiums.” The average cost of auto insurance in the U.S. is $1,020, according to AAA, giving the industry a lot to lose.
In writing driverless insurance policies, underwriters will likely focus on the make and model of a car instead of a driver’s accident history or how often he drives. There may also be the introduction of “black boxes,” data recorders akin to those found in airplanes that can track car data and decipher what really happened seconds before a crash.
Another possibility: an uptick in no-fault insurance, where an insurer covers the damage regardless of who’s to blame. This type of insurance has fallen out of favor in recent years as the cost of medical claims has increased, despite the expectation of lower litigation costs.
While it’s too early to tell which way auto insurance will go, there’s another cost for car owners that may go up. With fewer accidents keeping the nation well supplied with mechanics, repairing that fender bender may cost you more.